Which of the following is correct for the owner of a September put,valued at $20,on CBA Corp.with a strike price of $80? CBA currently trades at $67.
A) The option will continue to gain value until its September expiration.
B) The owner profits $13 per share by exercising now.
C) Further decreases in CBA stock price will be translated directly into additional option value.
D) $20 is the maximum value for this option.

Question

Quizplus · Accepted Answer

The owner of the put option will continue to gain value as the stock price of CBA falls. Therefore, further decreases in CBA stock price will be translated directly into additional option value. However, the owner will not profit $13 per share by exercising now as the strike price is $80 and the current stock price of CBA is $67, which means exercising now would result in a loss. Also, $20 is not the maximum value for this option, as it could increase in value further before its September expiration.

Which of the Following Is Correct for the Owner of a September